Temporary Bounce In Philly Fed Confirmed By LEI

The Philly Fed saw a slight improvement this month in the numbers which is most likely due to basic inventory restocking needs after two severe down months across the majority of the regions surveyed by the Fed. The index ticked up to a modest 8.7 which follows two very negative previous months of minus 17.5 in September and minus 30.7 for the troubled month of August.

There was Improvement this month in new orders, at plus 7.8, and in shipments, at plus 13.6. Again, while this is likely a temporary bounce in an otherwise weak index it did slow the run of monthly contractions in backlogs with a plus 3.4. Employment, however, showed a sharp contraction from the previous months 5.8 read to just 1.4 which is more indicative of the fact this may be just a temporary bounce in the overall index. Furthermore, there was a third straight decline in delivery times which points to overcapacity in the shipping sector and hints at economic weakness. Weakness in end demand is also showing up in drawdowns of inventory and price pressures.

While this month did bring a nice relief to the last few months of decline it doesn't necessarily mean that the economy is out of danger. As shown in the chart the 6-month trend is still very negative and in a place where recessions normally occur. Also, while todays read of 8.7 is certainly nice the survey in September (+5.6), October (+6.7) and November (+6.2) ...